The World's Largest Hedge Fund Is a Fraud
Harry Markopolos · 2005
"Bernard Madoff's impossibly smooth returns are mathematically inconsistent with any real strategy; the fund is either front-running or a Ponzi scheme."
In 1999, financial analyst Harry Markopolos realized that Bernie Madoff's impossibly consistent returns could not be replicated mathematically. He alerted the SEC multiple times that Madoff was running a massive Ponzi scheme, but was ignored for nearly a decade.
Madoff claimed to use a 'split-strike conversion' strategy, buying blue-chip stocks and hedging with options. Markopolos reverse-engineered the strategy and found that the options volume required to execute Madoff's trades exceeded the total existing volume on the Chicago Board Options Exchange. Madoff wasn't trading at all; he was simply using new investor capital to pay fake returns to older investors.
What was the mathematical smoking gun that proved Madoff was a fraud years before he was caught?
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The explanation above is written with AI assistance. These are the originals — go to them to check it.
- Interview with the Madoff whistleblower: "No One Would Listen"WBUR
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